All six countries in Western Africa[1], which cooperate with the IMF’s Regional Technical Assistance Center in Accra on capacity building, are heavily exposed to the impacts of climate change. They have set climate objectives in their Nationally Determined Contributions (NDCs) to contribute to the global challenge in reducing emissions, and are implementing various adaptation measures, but significant challenges remain.
In January, senior officials from the finance and environment ministries of these six countries and experts from the IMF’s Fiscal Affairs Department (FAD) gathered in Praia, Cabo Verde, to discuss and share knowledge on how to incorporate climate actions into the budget process to achieve the NDC targets.
Western African countries are some of the most vulnerable to climate-related shocks. Climate change has already impacted the region with drought, heat waves, and flooding, events which are estimated to accelerate in the future. Financing actions to respond to these events has decreased the governments’ available fiscal space. While these countries make up only about 3.5 percent of the world’s population and account for less than 0.3 percent (NDC estimates) of global carbon dioxide emissions, mitigation measures are encouraged, but adaptation[2] will be critical. Adaptation is costly, however - with estimates of about 3 percent of GDP additional financing each year - but essential if the countries are to avoid higher costs in the future.
Sound PFM and public investment management (PIM) processes will be crucial for the development, financing, and efficient implementation of climate-related measures. Despite some improvements in PFM in recent years, such as program-based budgeting and strategic budgeting, many implementation gaps remain in West African countries.
Public investment management assessments (PIMAs) conducted in the region indicate inefficiency gaps similar to emerging markets economies, estimated to be 40-50 percent. Output could potentially be increased by this amount if PIM practices in these countries were improved to the level of the most efficient countries.
Taking this as starting point, the one-week workshop in Praia underscored the importance of strengthening PFM and PIM practices as a precursor to the successful integration of climate objectives. Discussions also focused on how sound PFM practices contribute to increased fiscal space and good value for money to address climate action.
The FAD’s “How-to-Note” on How to Make the Management of Public Finances Climate Sensitive was presented during the workshop and formed the basis for discussion among participants and FAD experts on how the recommendations can be incorporated in regional PFM systems. In addition, participants discussed the possibility of deploying a recently developed IMF tool which assesses the fiscal risks related to climate change.
Countries in the region have recorded some progress in integrating climate change issues into their economic policies and budget processes. For example, all countries have or are in the process of including the NDC targets in their national and sectoral plans. Nigeria has issued green bonds to finance climate-related investment projects. Ghana has set up a climate change unit within the finance ministry, which has developed manuals to guide government agencies in accessing funding from the Green Climate Fund[3] and incorporating climate change concerns into the PFM system. This unit also coordinated the revision of the chart of accounts to track climate-related expenditures.
Challenges remain, which the IMF can help countries address through technical assistance. For example, countries in the region face financing gaps to achieve their NDC targets, and national and sectoral plans need to be aligned with the budget. Transparent monitoring and reporting of climate change-related expenditures will not only help strengthen the policy debates but will also be instrumental in allocating multi-lateral and bilateral funding through the budget and IFMIS system.
[1] Cabo Verde, Ghana, Liberia, Nigeria, Sierra Leone, and The Gambia
[2] Examples of mitigation and adaptation measures include (i) the elimination of kerosene lighting and gas flaring by 2030, (ii) all vehicles meeting EURO IV emissions norms by 2030, (iii) promotion of clean rural household lighting, (iv) gender-responsive sustainable forest management, (v) integration of climate change adaptation into the extractive sector, and (vi) development of integrated approaches to build rural climate resilience.
[3] A fund established within the framework of the United Nations Framework Convention on Climate Change, mandated to support developing countries in raising and realizing their NDC ambitions towards low-emissions, climate-resilient pathways.
